There were three interesting federal court decisions recently that give guidance beyond the court's holding.
In Jasinoski v. Countrywide Home Loans, Inc. (Eighth Circuit), the plaintiﬀs were seeking recession of their mortgage claiming that they had not been given two copies of the right to rescind. Unfortunately for the plaintiﬀs, they had each signed a statement that they had received two copies of the recession right notice. The court ruled that the plaintiﬀs' written statement created a reputable presumption that they had received two copies of the notice. There was insuﬃcient evidence to rebut the assumption so the plaintiﬀs' law suit for recession failed.
All document preparation systems, that I am aware of, have as part of the recession notice a place for the customer to sign acknowledging receipt of two copies of the notice. But, for most other disclosures a bank provides a customer, there is no acknowledgement of receipt by the customer. We recommend that a ﬁnancial institution obtain written acknowledgement of every disclosure that is provided to a customer. On the deposit side, this can be accomplished by either creating a separate document or embedding the receipt language in the account agreement. On the loan side, because disclosures are given at diﬀerent times the creation of separate acknowledgement documents is probably necessary.
In PHH Corp v. CFPB (D.C. Circuit), PHH Corp., a mortgage originator, had an aﬃliate relationship with Atrium Company, a reinsurer of private mortgage insurance. Whenever PHH originated a loan that required PMI it referred the borrower to a list of acceptable insurers, all of whom had agreed to reinsure with Atrium any loans referred to them by PHH. The CFPB found that the indirect referral to Atrium was an illegal kickback and required that PHH disgorge $109 million in charges. There was no allegation that the reinsurance premium charged by Atrium was not reasonable. The court held that the safe harbor in Section 8(c)(2) or RESPA, "permits a service provider to receive payments for the reasonable market value of goods or facilities actually furnished or for services actually performed." Accordingly, the fees paid to Atrium did not amount to an illegal kickback.
If your institution is involved in any referral arrangement for mortgage loans that involves an aﬃliate, make sure that the fees that are paid are reasonable in light of the services being provided.
Finally, in Tatis v. Allied Interstate, LLC. (Third Circuit), a debt collector was attempting to collect a debt barred by the statute of limitations. Under the Fair Debt Collection Practices Act it is not a violation to attempt to collect a debt that is unenforceable, whether because of the statute of limitations or otherwise. On the other hand, the Act prohibits any false, deceptive or misleading representation in connection with the collection of a debt, and to threaten a lawsuit when no legal remedy is available is false, deceptive and misleading. In determining what is false, deceptive or misleading, courts employ a "least-sophisticated debtor" standard to evaluate. In this case, the debt collector asked the debtor if he or she would like to "settle" the obligation. The court held that the word settle had the connotation of a legal action and therefore the actions of the collector were a violation of the act.
We recommend that ﬁnancial institutions not attempt to collect debts that are in some way barred by law. The risk of doing so normally outweighs the potential of collection. We also recommend that ﬁnancial institutions do not sell barred loans to debt collectors. You have no control over what the debt collector might do, and if it is egregious, there could be a blow back.